Contractor Cuts
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Contractor Cuts
How to Handle Clients that Don't Want to Pay You
We break down a practical playbook for handling clients who refuse to pay, from front-end contracts that set expectations to exit strategies that protect cash and reputation. Clear steps, calm scripts, and legal anchors help you finish fast or walk away whole.
• defining the client engagement agreement and expected scope
• explaining a 15% cancellation fee for remaining work
• using weekly invoicing to reduce leverage and surface issues
• documenting progress with photos and job logs
• offering two paths: one-week finish or controlled demobilization
• calculating final invoices line by line
• negotiating with cancellation fees and service credits
• securing payment with a lien waiver and non-disparagement
• using arbitration for timely, binding resolution
• mindset: own mistakes, avoid blame, exit cleanly
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Welcome to Contractor Cuts, where we cover the good, the bad, and the ugly of growing a successful contracting company. Welcome back to Contractor Cuts. My name is Clark Turner. Thank you for joining us again this week. So this week is another coaching cuts. Coaching cuts is where I cover in short form, a little shorter of a podcast, different topics that come up while I'm doing coaching. Today's topic is how do you handle clients that don't want to pay you, right? How do you exit a job as smoothly as possible when things have gone off the rails? Customers in you don't see eye to eye. You want to get out of there, you want to get your money, they're holding your money ransom, they're demanding a bunch of stuff, they're going quiet on you, maybe. How do I exit as cleanly as possible to where I don't lose my reputation and I can't collect the money? So it's a it's a good great topic. It's something that we all deal with at some point in construction. So today we're diving deep into that. So to get started, number one, if you've heard anything we've ever said on this podcast, is we every job starts cleanly and well with a well, well laid out client engagement agreement. This is our paperwork, if you're in the coaching program that we give you, uh, that really helps you lay the expectations out with the customer before getting started on the job. This is laying out exactly what they should expect out of you, what they shouldn't expect out of you. You know, they've all seen HGTV and think that's how it's gonna go. And so this paperwork helps us set the it really sets their bar to the exact spot of what our expectations should be. Uh, and we say, listen, you might be expecting this, but this is what's gonna happen. Or you might not expect this, but I am gonna give you this. So it really kind of either raises, confirms, or lowers their expectation as to what is they should expect out of you as the contractor on the job site. Included in that client engagement agreement, we have a cancelly. They are signing the agreement to the cancellation policy. There's two different cancellation uh phases. We have our pre-construction cancellation, which I'm not going to talk about today. The second phase, which is why we're under construction, how what happens when they cancel? In writing, it says in our contract, if you cancel the contract at any time, there is a 15% fee for the remainder of the contract. And the way I explain this to customers when I'm going through the client engagement agreement is listen, if you if you book us today, we talk through, we get a$100,000 job for you on our books. I've got the next three months booked out of my crews uh for your job. Day one starts, and you say, Hey, listen, I got an offer on the house, I got to sell it. Let's not, we're not gonna do this work anymore because I have someone who's gonna buy the house as is. That scenario, I've got my crews booked out. I've done work, I've got things planned out, I've got I've said no to other work. So there is a 15% fee. You owe me as my client$15,000, even though we haven't swung a hammer, because you signed the agreement and I did some pre-construction work as well as I said no to other jobs. It's the opportunity cost that they have to pay me because I can't just say, okay, I'm gonna call another job and start tomorrow with my crew. It's it's a lot of work getting the next jobs scheduled, set up, planned. So the amount of time that I lost on starting the next job on the next week, week and a half, two weeks that I'm preparing, moving jobs around, getting things to fill in is money lost. And that is on the client. And so I explained that to him during the client engagement agreement. And it makes sense. If you cancel the contract during any part of the construction phase, 15% of the remainder of the contract is owed to us as an opportunity cost, as the time put in that we have now lost. Um, and it makes sense on the front. Clients are fine with it. I've never had someone push back on that. They've asked about it, but but if you sell it the correct way, if you talk through it the right way, not a problem at all. If you have that in your contract, that makes this end part, which you never want to get to, but one out of 20, one out of 40, one out of 50 jobs end up this way where we don't see eye to eye and the client's ready to go to court or just fire us off the job site. That's number one. Number one way to avoid it is the front end client engagement agreement because you're really building the ammo for at the end, you've got you've got the firepower to be able to defend yourself, get paid, and exit out quickly. The second thing that we're doing on the very front end of the job is setting up how we invoice. So again, I coach hard, hard, hard on weekly invoicing. And everyone's like, that's a lot of paperwork. I got to do too much to do weekly invoices. But these weekly invoices, I tell my clients, these are our check-ins. This is me saying, Hey, I'm invoicing what we're doing next week. If we're done with what I invoiced last week for this week and you see how that's going, I need payment by Friday for what we're starting next week. I get paid one week in advance for the labor materials, anything I'm gonna spend next week, I'm invoicing today. So I might be putting a deposit on the cabinets next week. I'm gonna invoice for the cabinet deposit so that way I can pay my cabinet company to start making. Uh, we might start demo next week. So I'm gonna go in invoice demo this week. I'm gonna say, hey, this is what's happening next week, this is what we need, and I need payment this Friday on that. That way, I'm getting paid every Friday for the work that's happening next week. And then when I invoice next week, it's I might check with my client. Hey, I told you we'd be done with demo. See, we're almost done. It's gonna be done by tomorrow. The following week, we're gonna start putting subflooring in, whatever it is. That way, by laying out the timeline, laying out what we're doing next week, laying out what I'm invoicing for, we're having the conversations about what I already invoiced, what I think is done, that the client might think, uh, I don't think that paint's done. So we're not ready to pay the next invoice because we need to talk about the other stuff we've already paid you for. So it helps you check in. And secondly, weekly invoicing means there's not a point that the client owes me 40 grand. There's not a point that if a client holds my cash, it's going to hurt me. Right. The weekly invoices, I'm invoicing$5,000 for next week, maybe$15,000 on the front and when I'm buying materials, but most of my weekly invoices are not going to be over$10,000. That means there's a$4,000 invoice for next week, and then we kind of don't see eye to eye on something, and trust is broken, and the client wants us to exit. They don't owe me$50,000. They owe me$4,000 to where fine, hold that. We can talk about this per our agreement. This is how we handle disputes, which in our CEA, it talks about all disputes are handled through the uh American Arbitration Association, I think it's called. But we we agree that we're gonna go to arbitration, and an arbiter is going to be a binding contract of what they decide is what we're gonna go by. So that's in there, but I can use that and say, listen, if you're gonna hold$4,000, that's not harming me to start the next job. Hold that. I'm gonna prove my case and I'm gonna win this. If they owe me$50,000 and they delay that payment by two months for us to get to an arbiter, that might kill my business. If you're a smaller company, that's going to really slow down cash flow and the ability to start the next thing. So the less leverage that they have, the less money they're holding that you think they owe you, the better chances you are at a collecting and b being able to negotiate and deal with the repercussions of maybe going to an arbiter or having some sort of dispute resolution happening. Um they owe me 50 grand. I need that tomorrow. So just fine, give me 40 and we'll we'll call it. Uh, where you're losing a lot of money on the back end because they've got all the leverage on the negotiation. So, number one, we want to make sure that we have our client engagement agreement talking about cancellation policy, that they understand it, that they've signed it. Number two, we're we're doing weekly invoicing where they don't get over their skis and we don't get too far out from what they think they owe us versus what I think they owe us. Um, those two things alone, if you're running your jobs through the processes the right way, those two things by themselves are going to eliminate 90% of the issues on the back end when someone doesn't want to pay you. Those two things alone are going to really help you get paid, make sure you keep their money in your pocket and also exit cleanly. So from that point, if we've set that stuff up and you have both those things in place with this customer, everything's fine. And again, I hear all the time I can't do weekly invoicing. I do new construction and I got lenders. That's great. There's good every single client's gonna be different. If they're paying cash, if they've got a HELOC, if there's a way that we can do weekly invoicing, great. If you're using a lender and we have to go through some middles and uh and different sort of paperwork for that, that is what it is, and that's gonna happen. So there's clients that we have that that are that same way, and that's okay. It's knowing how we're gonna invoice and trying to get the majority of the homeowners to be on the same page. Honestly, most of those that are doing lenders that are the larger jobs don't end up this way. It for some reason it feels like it's that small$30,000 bathroom or kitchen that a client gets unhappy with and doesn't want to pay, is usually where you're gonna see these issues for some reason. Either way, we're trying to get everyone to invoice the same way if they can and get on that page. So let's say we've done that. We've set both of those things up. They understand the cancellation policy on the front end, we're doing weekly invoicing, we go through the job, we get towards the end of the job, and one thing after another has happened that have broken trust. First, and and we get to a spot where the client calls you up and says, listen, or sends you an email, sends you a text and says, Listen, we're good. Y'all just be done. I'm gonna hire someone else to go to finish this out. Hey, just be done. I don't want y'all to come back here. That usually happens because I've lost their trust, and and a majority of the reasoning that they feel that way is probably true. So the number one thing you need to be doing at this point is reflecting on what is true that you have broken their trust. Hey, I know I told you that crew was great, they showed up, their paint job looked terrible, we had to repaint it, but I did bring another crew in and pay them out of my pocket to repaint it, right? So, and so I'm starting to go through all of the things that broke their trust, and I'm calling it out and talking about it with them, saying, listen, I get that you're ready for us to go. I get that that you don't trust that we're gonna be able to execute this, but I want you to know we can. So, understanding and claiming and owning the things that you did wrong and not going after them for the things they did wrong is the way that we neutralize this and get out quickly. I don't care. Uh I I have in my back pocket the things they did wrong, but I'm not going after them tit for tat. Hey, you did this, but you did this. So I uh because I did that, it's your fault at this. That that's not helping. The goal is not justice, the goal is how do I exit as cleanly as possible? And I'm saving two things. I want to save money and I want to save my reputation. Usually your reputation is gone by the time that that this is happening, uh, which we'll talk about in a second. But at least I want to save my money. Ideally, both. So at this point, there's two paths, and I give every single client at this point when they're when they're frustrated, ready, ready to part ways, I give them two different paths. Path number one is I lay out and say, listen, we have the contract. This is a cancellation policy. It's gonna cost you way more to mobilize somebody else to come in and they understand where we're at, take it over. Not only is it gonna cost you more, it's gonna take a lot more time. Looking at what we've got left, I've got one week left out here. I'm gonna bring this crew out. I know you didn't like this dude, so he's not coming back out, but I'm gonna bring these guys out. I'm gonna handle this part myself, I'm gonna do this. If we can exit cleanly, we'll be out of here in a week. Everyone will be good. We're not gonna sue the pants off each other. We can we can end and part ways. Listen, I want to get out of your house as much as you want me out of your house. I need to get on to my next project. And because this is dragged, uh it's it's harming both of us. So can we make a game plan if I lay out exactly what the exit strategy is to where we can finish? Option one is let's have a uh a kind of a erase the whiteboard, let's start over and let's have a one-week project to get this finished out. And let me lay out to you day by day what's gonna happen. I'm gonna be here every single day starting the cruise, making sure everything gets done. And you're gonna micromanage and baby this job. But we're talking about it with the client saying, listen, option one, even though I understand where you're at frustration-wise, there's some stuff that's out of my control. There's some stuff that we disagree on as to who's at fault. Let's erase all that. From here towards next Friday, all I need to do is X, Y, and Z. And I'm gonna have this crew doing it. I'm gonna do this part myself, and I'm gonna have these guys come in and do this, and then we're gonna be out of here. I'll have my cleaners come in next Thursday or Friday. We'll be 100% out of your hair. You're gonna get the job you want. We could both go and be done. That's option one. Option two is I leave the job site, you fire me off the job, you owe me the cancellation fee for how much is left. You're gonna owe me for the work we've done. And there's honestly a couple thousand dollars worth of free work that I haven't even asked you to pay. And I'm willing to not ask you to pay if we just finish out this smoothly, right? And so I'm uh option one is gonna be let's finish this out. Option two is this is what happens if you want to fire me off the job site. This is how much it's gonna cost, this is how much you owe me. And I've calculated that number. When I know that we're gonna have this conversation, I'm going through saying, okay, let's see, paint line. We're about 75% done with the paint, so they owe me X. All right, so flooring, we're 100% done with that, so they owe me all of that. And so I'm going through every line item to say, okay, this is what the final invoice is gonna be. Because if I don't have that number, there's no use talking about it because they have a number in their head that they want to pay you, and it's always gonna be lower than what you're owed. So at this point, I'm I'm building my invoice, my final invoice. I'm saying, okay, they owe me, I think they owe me$10,000 of work done. And then after that, there's about 20 grand of work not done, and they owe me 15%. So that's$3,000 for the cancellation fee. So they owe me$13,000 to exit right now. And I come up with that number of what they owe me and how much it's gonna cost for the fee. And so I say, listen, option one is we just get this done. You pay me what you owe me, I get out of here, I give you a good product. Option two, if you believe that I can't do that, if I can't get you to that good product and you just want me out of here, you owe me$10,000. Here's the invoice of what you owe me and why. And then you owe me$3,000 cancellation fee. And also, there's about$4,000 of services rendered of work that you've asked me to do that I have done that I'm gonna tack on at that point. I don't want to do that. Um, and honestly, that part of it I'm saving kind of as my negotiation side. And so I say that to him. I say, listen, it's$10,000. I did all this other work, it's about four grand. There's third$3,000 cancellation fee. We're about$17,000. But you know what? That gray area of that other four grand of work that I've done, I'm willing to just cancel that out if you just want to pay me the$13,000. Pay me what I'm owed, pay me the$13, and that four grand of extra work, I'm gonna throw, throw, throw away. I'm not gonna charge you for, we're good, let's let's exit. That way, I'm getting paid fully of what I'm owed, but it looks like I'm I'm compromising. I always want to keep throughout a job, even if I'm doing something for free, if they call me and say, hey, I know we picked this tile out and it's already been delivered. I'm looking at it. Can we take it back and do this other type of tile? Yeah, I might hop in my truck, go over there, return the tile, spend a day getting the new tile, bringing it back. I might not charge them for that, but at the end, I can say, listen, you had an exchange order. You asked me to do this, you spent a day of my time, you owe me an extra$600 for this exchange because you changed your mind on the material selection. Right. So we're trying to build ammo so we can say, hey, you owe me this, but I'm not gonna charge you. I'm trying to give some sort of a compromise without compromising the money that I'm actually owed. Uh, and so I I give them those two paths. I say, path one, we finish the job out. Path two, you owe me 10 grand of work that's been completed. You owe me three grand cancellation, you owe me four grand for the change orders and the extra stuff you've asked of me. The service is rendered, keywords, service is rendered. Uh and uh I'll tell you what though, I don't care about that four grand of service is rendered. I will compromise. Let's just get out of here, pay me the 10 plus the three, and we'll call it. Um, those are your two options. I really don't want to go that route. I'd love to stay here and finish. I'd love to get on the same page, make sure that you that we can build that trust and make sure that you're comfortable how we move forward. At this point, the client starts laughing and say, I'm not paying any of that stuff, I'm not doing that, I'm not doing this. And so we say, okay, listen, we'll pull off. Previously to pulling off, though, if you know this is coming or you feel that tension happening, what you need to do is document the job site. I want photos of everything. I want, I want it clean as possible at the end of the day, and then take photos at the end of each day. I want to show what we've done, what we haven't done. Because once you pull off, they might not tell you, they might have another crew that starts working. They might pull, they they've oftentimes I've found that a client is finding another contractor in the background, and then I get a phone call and says, hey, don't come tomorrow. We're done with you guys. I got someone else to finish it. And we go out to get our tools, and there's another crew already there working, right? They've broken, they've they've uh broken their warranty, voided the warranty. They are uh contractually, they're not allowed to have other guys out there because the CEA talks about we're the only guy, only crew that's allowed to be on site. There's a lot of stuff of breach of contract that happens at that point. So, all that being said, I'm not using breach of contract language until I'm getting real threatening. At first, it's like, listen, two pass, this is how much money you you got to pay me to walk away, or we can just get it done, your choice. Um, and then they're gonna start negotiating. Well, I don't think I owe you this, I don't think I owe you this, and I'm not paying your cancellation fee. I'll give you$5,000 and we're gonna call it. At that point, I say, uh, that's that's unacceptable. This is our contract. You owe me$10,000 for the work and you owe me$3,000 for the cancellation fee. Now, that cancellation fee often I end up using as negotiation. That$10,000 they owe me, I'm not budgeting on. That$3,000 that they that is a cancellation fee is also additional leverage in terms of negotiation because I've got them dead to rights to owe me that money. They've signed a contract that says that they owe me that money. So I can use some of that and end up negotiating down to 10 instead of 13, and I'm still getting paid and made whole on the job. But again, that's where we that's where we can do a little bit of budging. If we're doing weekly invoicing though, they're not going to be owing you 10, 20, 30,000. They might owe you 5,000, 6,000, and the cancellation fee is almost as much as they owe you. So it really helps saying, listen, I don't want to hit you this. I don't want to hit you with the cancellation fee, but I got to. Let's just finish this job out. The goal of this is to exit cleanly and to get paid for what you've done. All right. So lastly, lastly, let's say that the client um says, Hey, you know what? Fine. We get a negotiation price, we're gonna pay you 9,000, we're gonna exit that way, and I'm fine with getting nine to leave here. I'm getting made whole, I'm good with it. I didn't get the 13 I wanted, but I'm getting that nine. If I get to that spot, uh I have one more thing you need to do. Don't just go collect that check and leave. We have what we call our lien waiver release form. This lien waiver release form usually is what a client should ask of us to sign the lien, lien release to say, hey, we're not gonna put a lien on your house. And we use it saying that. We use it saying, listen, this is a lien release to tell you that once you pay me that$9,000 that we've agreed upon, I will not put a lien on your property and that I'm guaranteeing that all my subs are paid. And this is this is protecting you as our client. But also in the lien release uh waiver that we've got, it says either party are not going to publicly defame or derogatorily talk about, I forget the exact words, but it talks about in there that neither party can talk about this publicly. Um, that we're agreeing to walk away. And and the terminology inside of that lien release really protects you from getting that one star Google review. Because what they're agreeing to is if you pay me that$9,000, I'm not gonna put a lien on your house and you're not gonna talk badly in public about me, which is a Google review. Now, can you implement that? Yes, no, I don't know. Um, you're I'm have never sued someone over that and signing that and then giving me a negative review, though that's never happened. Um, but if that does happen, you can you can quickly, and if they give you a one-star review, that's killing your reputation. So you can say, hey, listen, just so you know, the lien waiver that you signed to release this check says X, Y, and Z in it, which means you are not allowed to post that. I need you to delete that comment or we're gonna we're gonna go after you for defamation. Um, because you've got them signing saying that they won't do that. So again, there's layers on how to do this. That that lien waiver is so important to get signed. Am I forcing it before I get paid? Sometimes it depends on the client. Um, but a lot of times it's saying, listen, this is what we've agreed on. We're gonna sign this contract that we're that we're both exiting and walking away from this. Uh, and it really protects both sides when in in reality I'm stopping them from writing a negative review. All right, so that's a lot. That was a lot of information. Let me review quickly. We're gonna do the front-end client engagement agreement. We're gonna have our cancellation policy in there, we're gonna do weekly invoicing as much as possible. Then, if we get to a spot where trust is being broken, I'm I wanna have a heart-to-heart with the client and talk about what all we've done wrong to break their trust. And I viewed that way. I said, I clam up to everything. I say, listen, I understand that's frustrating that we did that. I'm sorry that my guys did that. I don't know why that they would leave that in your leave our souls in your kitchen where your kids are. I'm so sorry about that. This happened and that happened, and I totally understand that. But I'm gonna make sure that doesn't happen. I'm gonna be here every single day and I want to exit cleanly. So option one is let me finish. Here's a game plan to finish. Let's get out of here and we're done. Option two is gonna be this is what you owe me, this is a repercussion, this is everything you owe me, this is the services render that I'm willing to not go after you for because this is all you owe me. Um, and we negotiate to that price. Those are my two options. After that we negotiate and we come to a final price, at that point I'm having them sign a lien waiver that releases both parties from the project. If they we can't come and see eye to eye, that's when we pay four or five hundred dollars. We go to the American Arbitration Association, we hire an arbiter, they sometimes will do it over Zoom, and you present your case to them. If you've got your photos, you've got your contracts, you've got the sign client engagement agreement, you've got everything well documented using the Pro Truck software where it's all listed in there in your job log. All of that, you sit down with the arbiter and they're gonna be like, yeah, pay the guy. You owe him that money that much money. And so you're gonna end up winning that case because of what you did and what you've prepped for. And if they only owe you four or five, six thousand dollars, you can you can wait to collect that till after arbitration. If they owe you 40,000, it's hurting your ability to grow and continue the job. And oftentimes you're just gonna have to settle with them quickly to get paid. So, long and short of it, if I can finish the job, if I can get done with what and finish it out myself, it's gonna be the cleanest, easiest. I'm gonna get made whole. Don't try to threaten, don't try to go to court. We are trying to, even in this moment, trying to be an advocate for the client. We're trying, even if they're not seeing eye to eye, they're being mean, they're they're being short with me. I'm saying, listen, I don't want to charge you this. I don't want to charge you this, but I have to because it's hurting our company. And so it allows me to have the CEA, the bad guy, and I'm trying to be the good guy. Let's not pay this. So that is the mindset you have. We're not trying to get justice and make them pay all I in terms of arguing and you did this and it was your fault and you didn't have this ready and blah, blah, that doesn't help at all. I'm looking past that saying, listen, we don't see eye to eye on this. We're gonna start fresh from here moving forward. These are two options. All right. If you want to talk about this, if you have a situation that you have dealt with like this and you want to talk, go to contractorcuts.com or you can go to ProShark360.com and go to the contact us. I love to talk to you about it. If you have any questions, I can I can help you through it with any customers. If you want to come on our retreat, I would love to see you at the retreat. Uh, it's coming up January 11th through 13th. Uh, it's a fantastic way to really understand what 2026 should look like for your company. So please, please, please go to contractrequest.com, check out the website, and we'd love to see you at the retreat. All right, thanks so much for listening. We'll talk to you next week.
